Mumbai: Punjab and Sind Bank, the last unlisted government-owned bank in the country, will seek a stock-market listing by mid-December after selling fresh equity shares to the public, completing a cycle begun in the mid-1990s when Oriental Bank of Commerce became the first state-run lender to go public.
The bank plans to sell around 40 million shares in an initial public offering (IPO). Retail investors will be sold shares at a discount of 5%. The government will dilute around 18% of its holding in the bank.
The sale is likely to open on 13 December and close on 16 December, said P.K. Anand, executive director of Punjab and Sind Bank. Analysts expect the IPO to be received well if priced appropriately.
“The bank was not doing well some eight years back, but has gained momentum in terms of garnering business in the years after. We think this is the right time to unlock the value through an initial share offering,” Anand said.
Although the lender is yet to announce a price band, it is likely to be above its book value of Rs120 per share. Press Trust of India news agency had reported last month that the bank planned to raise around Rs600 crore in the IPO. At this valuation, the IPO should be priced around Rs150 per share.
Punjab and Sind Bank, which began business in 1895, is the smallest of the state-run banks in terms of business. The lender, which traces its early years to the Swadeshi movement against the British, started with a capital of Rs200,000, working capital of Rs20,000 and a staff of nine whom it paid a total monthly salary of Rs320, according to its website.
At the end of the last fiscal in March, the bank had total deposits of Rs52,945.09 crore and advances of Rs35,859.97 crore. It had 926 branches as of 31 October.
Analysts said the listing would help the bank fine-tune its business besides raising resources to support future business growth.
“Banks are considered as a leverage play in a booming economy, especially given that we are a capital-starved economy. They will continue to grow at a faster pace,” said Pramod Gubbi, director of equity sales at British investment bank Execution Noble.
“Smaller banks like Punjab and Sind Bank should grow at above 20%, given that its base is small,” he said. “Being listed is pretty much in line with what they should do in the current market context.”
The bank has been focusing on balance sheet growth with an average compounded annual growth rate (CAGR) of 36% in advances over the past five fiscal years and 28% growth in deposits.
“Generally, the performance (of a bank) tends to start improving once it gets listed as they have to perform to compete with other players,” said Vaibhav Agarwal, vice-president, (research) at Angel Broking Ltd. “They need to stick to the basics of business, given their size, by focusing on their core business, growing strong deposit base and risk management capabilities to effectively manage the asset quality.”
State-run banks have performed well over the years in the face of competition from aggressive rivals in the private sector and from foreign banks. Government-owned banks control 70% of India’s banking industry, foreign banks just around 7% and the rest is held by private sector banks.
Oriental Bank of Commerce in 1994 became the first public sector bank to be listed following an amendment of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980 that enabled the government to lower its stake in state-owned banks to 51%.
A clutch of state-run banks went public in the subsequent years. The last state-owned lender to sell shares in an IPO was the United Bank of India, which listed in February after raising around Rs330 crore from public.
“In government-controlled banks, the government is prone to come out with populist measures like loan waivers, which can take away the real viability of the banking business. Hence, as a value investor, one would avoid such stocks in the long term,” said an adviser with a Mumbai-based financial advisory firm who did not want to be named.
Besides Punjab and Sind Bank, the government held 80% and above in three public sector banks—Central Bank of India, Indian Bank and United Bank of India—at the end of March. A few of them, including Oriental Bank of Commerce, Dena Bank and Andhra Bank, have gone in for follow-on public offers and brought down the government stake close to the 51% minimum.
Over the years, the market value of a majority of state-run banks has doubled, mirroring the sharp growth in their business in the years following the liberalization of the economy in the 1990s. A loans-for-bribes scandal unearthed last month has caused bank shares to weaken. On Monday, the Bankex index of the Bombay Stock Exchange (BSE) closed 2.86% down at 13,339.43 points as the benchmark Sensex fell 0.23% to 19,934.64.
The move, however, faces a challenge from the unions.
“We would strongly oppose the move as the IPO takes state-run banks a step closer to privatization,” said C.H. Venkatachalam, convener of the United Forum of Bank Unions, an umbrella body of bank unions. In the past, too, trade unions have opposed the public floats of banks.